Top European officials played down the likelihood that investors will have to accept a "haircut," or losses, on their holdings of Cyprus's bonds on Friday, after ratings agency Standard & Poor's downgraded the country's debt.
"I assume a haircut won't be among the measures used" for Cyprus, and "I would like to rule that out from my side," outgoing Eurogroup chief Jean-Claude Juncker said in an interview with German radio station Deutschlandfunk.
S&P slashed Cyprus's credit rating Thursday by two notches to CCC+, seven steps into junk territory, and said that the country faced increasing financial pressure.
The International Monetary Fund said this week that Cyprus bailout talks aren't likely to be wrapped up before the end of the year.
The statement followed media reports that the IMF was pressing for a restructuring of the country's government debt, much of which is held by the private investors. The IMF declined to comment on the specifics of those reports.
"There is no question of a haircut for Cyprus now" because European institutions only have preliminary data on the financing needs of Cypriot banks, Joerg Asmussen, a member of the European Central Bank's executive board, said in an interview with German TV station ARD. The final numbers will be available next month, he said.
Cyprus has been negotiating the terms of a bailout with the euro zone and the IMF since the summer but has yet to strike a deal. The country can't expect to receive aid until international creditors receive the final results of a due diligence check on its banks, expected in mid-January.
Mr. Asmussen said it is "already foreseeable" that Cyprus's financing needs will be so great that the country's debt will be unsustainable. But Mr. Juncker said that debt haircuts should only be applied in "exceptional" cases in order to maintain credibility.
"We didn't say all Greek-speaking countries, we said Greece," he said.
The Cypriot financial system has already taken a hit from Greece's debt restructuring. The IMF said in its 2011 review of the Cypriot economy—before the Greek debt write-downs—that the country's exposure to Greek banks represented 160% of its gross domestic product.
Mr. Juncker urged governments to keep up their reform efforts.
"I am not the man who sees the end of the crisis already," he said. "We have passed the peak of the crisis, but we…must hold the course."
Cyprus Debt Haircut Seen as Unlikely